George Osborne needs to know 'Plan A hasn't worked', says Owen Smith

George Osborne admitted it was taking longer for Britain to recover from the financial crisis than he hoped

Osborne admitted it was taking longer for Britain to recover from the financial crisis than he hoped

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George Osborne admitted it was taking longer for Britain to recover from the financial crisis than he hoped amid warnings that the Government would miss its key economic targets.

The Chancellor also warned the rich would pay more when he unveils his Autumn Statement on Wednesday, but ruled out Lib Dem proposals for a mansion tax.

Mr Osborne said the independent Office for Budget Responsibility would report on Wednesday on whether the Government would meet its economic goals.

“We had two targets – one was to get debt share falling as a share of national income by 2015-16 and also to balance the current budget,” he told BBC One’s Andrew Marr Show.

“It is clearly taking longer to deal with Britain’s debts, it’s clearly taking longer to recover from the financial crisis than one would have hoped but we have made real progress. The deficit is down by a quarter, there are a million more jobs in the private sector and to turn back now, to go back to the borrowing and the debt and the spending that Shadow Chancellor Ed Balls represents would be a complete disaster for our country.”

But Shadow Welsh Secretary Owen Smith – himself a former Labour Treasury spokesman – said: “George Osborne needs to swallow his pride and acknowledge that Plan A hasn’t worked, that growth has been much lower than he expected, and that people are struggling.

“As things stand, much more severe cuts are due to be imposed in the next financial year from April. Yet the Government’s belief that its austerity measures would lead to growth because the private sector would invest has been shown to be completely wrongheaded.

“It’s not rocket science. George Osborne should change direction and provide a short-term Keynesian stimulus aimed at injecting money into the economy and restoring consumer confidence.”

Responding to a suggestion from the right-wing Institute for Fiscal Studies think tank that VAT may have to rise from 20% to 25% to tackle the nation’s debt, Mr Smith said: “I think it would be completely bonkers to put up VAT, which is fundamentally a regressive tax. It would deprive people who are already poor of a further portion of their disposable income and hit the economy at a local level.

“It’s true that the wealthy would pay more in absolute terms because of their purchase of more expensive consumer goods and services, but raising VAT would squeeze the majority who are not well-off hard.”

Plaid Cymru Treasury spokesman Jonathan Edwards said he would be proposing that the Welsh Government should immediately be able to use borrowing powers it had inherited from the former Welsh Development Agency when it was taken “in house” in 2006.

He said: “The Silk Commission recommended last month that the Welsh Government should be given borrowing powers as soon as possible. Obviously it will take the UK Government time to take the recommendation forward.

“In the meantime, however, it could immediately allow the Welsh Government to use the powers it inherited from the WDA without penalty. As things stand, any borrowing undertaken by the Welsh Government would simply be deducted from the block grant it receives from the Treasury. The Welsh Government has been hit particularly badly, with a 40% cut imposed on its capital spending. Borrowing powers would allow it to invest in job-creating infrastructure projects that would give a real boost to the economy.”

Mr Edwards said that without a change in direction, the economic outlook was dire.

“The last Labour Government created severe economic problems in a boom fuelled by an artificial rise in housing prices and unsustainable consumer debt. Now the Coalition Government is imposing austerity measures that are doing more damage,” he said.

“We are in a grave situation – in economic terms worse than the Great Depression of the 1930s or the recession of the 1990s. In contrast to those situations, the UK’s Gross Domestic Product is still 3% below what it was in 2008 at the time of the peak before the crash. The economy desperately needs a stimulus. Because of devolution, Wales could be in a position to make a real difference, but getting borrowing powers is essential.”